All Forum Posts by: David Lyons

@Aaron Moayed appreciate it. I think the existing leases are older than 2020, so would be OK to move into one unit to start off. Then would have to have that language in the lease renewals with the others. But yes, talking with an attorney is good advice here from the sounds of it.

Thanks @Aaron Moayed for the quick response! Cash for keys sounds like an option, but 3 months' rent + storage + moving would be a deal killer I think. You're probably right about having the open dialogue with them and see if anyone is thinking of moving anyways.

Are you sure that #5 is a no-go? Deciding to move, as owner occupant, from one unit to another seems like it's within the owner's rights from the verbiage of the bill. But maybe if you're already occupying one unit it doesn't apply

Hi all,

My wife and I are in the works on buying a house hack in San Diego, and there are a few details for which I can't find answers, so I'm hoping the BP community has some!

Here are the details. We are looking to buy a 3- or 4-unit and move into one of the units while renting the others out. Most units for sale have tenants in place, often with below market rent where the owners haven't increased rent in years. To use an example property, it is a 4 unit, three of which are renting for $1600 and one for $1850, but market rent in the area is $2100. All tenants are month-month on leases, so in most states it wouldn't be that hard to turn the rental units.

With the passing of AB 1482 in CA implementing statewide rent control starting Jan 1 2020, it seems there are some major limitations with what you can do with rent and tenants. I know that rent increases are capped at 5% + CPI up to a max of 10%, and I also understand that you can no longer give tenants a "No Fault" notice to vacate. With that said, a few specific questions for you all:

1. As part of the purchase agreement, can the seller remove tenants from all 4 units? I know they would need a 60 days notice, and probably wouldn't want to until after I remove all contingencies. So that's a long escrow, but that would be ideal for us to take the building vacant. However, I'm not sure if the limitations around "No Fault" notice to vacate would stop them.
2. Same as above, but can the seller at a minimum remove 1 tenant, so we can occupy the property? We want to use a conventional loan, but those have a 60 day occupancy clause, and CA requires 60 days' notice to vacate. One of the allowable reasons to give notice to a tenant is the owner is moving into the unit, but I'm not sure if the seller can use that as justification or if we would have to close on the property, then give notice of owner intent to occupy.
3. Duplexes that are owner occupied are exempt from the state rent control law. Does anyone know if 3- and 4-units are also exempt?
4. Can rent increases be done cumulatively at one time? For example, if rents haven't been raised for the past 4 years, could it be raised 5% + CPI for all 4 years combined in one go? So 20% + increase would be allowable in this case? I know SF allows landlords to do something like this, but can't find a clear answer about the state law.
5. If the above answers are all unfavorable, it seems we'd be stuck with buying a property, giving notice to 1 tenant so that we can occupy that unit, and raising rent with 60 day notice for renewal of leases. In that scenario, could we decide to move into a different unit within the 4-unit each year, using the Owner occupancy clause? We could then rehab the the live-in unit each time, and rent the now vacant unit we were previously living in at market rent.

I appreciate any answers you all in helping us navigate this and get into our first house hack!

Thanks,

David Lyons

@Ryan Evans and @Don Petrasek thank you for the responses!

We pulled a bunch of comps ourselves and ran the numbers. On the low side it should appraise realistically for 65-75 without putting in rehab. With that and fixing up the main safety factors, even with tenants at current under-market rate of $500/mo per unit and factoring in the rehab costs, we're looking at ROI of 10-15% which I'm happy with as a starting point, with upside to improve and increase rent.

My main concern was with the appraisal to refi and get some of the money out of the deal. After doing a lot more analysis on our side, the numbers look good even with conservative estimates on ARV and rehab.

I appreciate everyone's input; love these BP forums!

@John Koster I appreciate the insights! The challenging part has definitely been understanding how much the different factors will be adjusted for. Good advice to reach out to an appraiser for how they're doing things during Covid; I'll see if they can offer any guidance on the different factors as well.

For personally running comps, I've pulled all the sales I can find on those websites for the past 9 months within ~0.5 miles. You mentioned to factor in how the comps were purchased. Could you expand on this? Since the different websites sometimes have different recently sold comps in the same neighborhood, I assumed they're not just sourcing that information from MLS. Do you know if lenders typically only look at MLS-listed sales?

Hi all,

My wife and I are in the process of buying a duplex rental property in Cleveland, OH. We're buying through a wholesaler, and the property already has tenants in. Our plan is to buy with delayed financing - pay cash upfront and then refinance to recover most of our cash.

We initially thought it was a great deal, but after pulling more comps around the area, we're a little concerned about what the appraisal value will come back at. A few questions around the appraisal process for you seasoned investors and/or appraisers out there. Appreciate any insight people have!

- How do appraisers choose which comps to include? For example, the wholesaler provided 3 comps from the last 90 days averaging 86k (78, 87, 94), but the 94k one was for a triplex. Running our own comps, we saw another sale posted recently for 63k, and if we look back 6-12 months there are some in the 30-50k range. We're concerned some of those will bring down our appraised value.

- As investors, where do folks research their own comps?

- I've heard appraisers have to "bracket" their appraised value in between their highest and lowest comps. Is this always the case, or can it appraise lower after adjustments?

- How are garages valued or adjusted for? Some of the comps include garages, while our unit does not.

- How are driveways valued? Does asphalt vs. concrete matter much, and does the condition impact appraisal value? Ours is an older asphalt type with a few potholes.

- What about window condition/age and age of the roof? The windows are older, and the roof is about 15 years old but seems in good condition.

- Is the appraisal process different right now with covid, particularly for units with tenants already in? Wondering if appraisers are entering the properties or relying more on comps and exterior condition, etc.

- What is the best approach with current tenants and appraisal? We'd like to keep the current tenants (been there 15 years), but not sure if this could negatively affect the appraisal vs. having the units empty and clean.

- If getting a licensed general inspection, who pays for this typically with buying from a wholesaler? If the buyer pays, does the wholesaler get to see the report or is that up to the buyer's discretion?

Thanks in advance for your thoughts!

- David

@Leeron Regev that makes sense. I've actually gotten a hold of a few local lenders & a commercial broker who are still giving investment loans for MFR. Good to know that the larger banks are going to have more restrictions in times like these.

Thanks @Lola Omishore for the advice on the local banks!

Hi all,

I was working on a pre-approval for a conventional loan on an investment property today with Chase. After filling out the application and talking to a loan officer, she told me they're not making loans on multi-family units or condos right now. Has anyone had similar issues with getting a conventional loan for a multi-family investment property recently? I'm curious if many other banks are putting similar restrictions in place, and wondering when they'll lift them

- Dave